Downsizing Arnold

Robert Salladay and Peter NicholasTimes Staff Writers

Arnold Schwarzenegger walks into Lucca, one of his favorite restaurants near the Capitol, its walls dominated by an enormous painting of a goose and a copper-framed mirror as wide as a Hummer. Bursting from his suit, his hair that peculiar Arnold orange, the governor sits next to Bonnie Reiss, his closest aide and longtime friend.

"The retreat was fantastic! We got so much done!" he says.

The governor has just returned from Squaw Valley, another fantastic location where Schwarzenegger made fantastic decisions for the people of California. There's this big idea that came out of the retreat, to allow California soldiers in Iraq to call home for free. It's fantastic. Free phone minutes for soldiers.

On another day, Schwarzenegger positions himself inside an airplane hangar in Long Beach. Boeing workers hang off the wings of aircraft. Bachman-Turner Overdrive's "Takin' Care of Business" blares from speakers. Arnold comes out, and it's pandemonium. "I promised you action! And now you're going to see it!" he tells the crowd. Then he sits down at a table and signs a bill to reduce workers' compensation insurance premiums.

It's an important step, one that fulfills a campaign promise. But this is Schwarzenegger in a loud, muscular setting. He should kick a villain through a wall or blow people away with an assault weapon, not sign bills or champion free phone calls. Somehow those actions, worthy as they are, seem small coming from a figure who rocked the world nearly a year ago by becoming California governor.

At his inauguration Nov. 17, Schwarzenegger promised California a revolution. He was the revolution--by unseating a governor for only the second time in U.S. history. He talked about "blowing up the boxes" of government, about action, action, action. He rode to Sacramento on a wave of giddy goodwill and an outsized expectation that government needed to have its clock cleaned, and that it would take someone huge to do it.

In the year since, Schwarzenegger has shown himself to be huge, in every sense. His massive chest seems to arrive a few seconds before the rest of him. He can't find a mansion big enough for himself and his family in Sacramento, so he lives atop the Hyatt Regency Hotel and commutes to work about 100 yards in a three-car motorcade as hotel employees block the streets. He takes a private jet back to Brentwood as often as he can. His not-quite-dissolved cough drops are offered for sale to people wanting his DNA. He has persuaded Warren Buffett to do sit-ups for daring to contradict him. Sen. Edward Kennedy, Democrat and uncle-in-law, has faxed him jokes.

But after watching Schwarzenegger govern, it's apparent that his hugeness is being squeezed into something rather ordinary, something produced by committee and rolled over by the squeaking wheels of the system. Schwarzenegger, in short, often seems far bigger than his accomplishments as governor, which is another way of saying that the promised revolution hasn't yet arrived.

"I think he gave much more thought to running than he did about what he would do if he won," says outgoing Senate President Pro Tem John Burton (D-San Francisco), who has become Schwarzenegger's closest contact in the Legislature.

Others give Schwarzenegger more credit. The revolution hasn't come because Schwarzenegger is driven, has always been driven, by a need to move forward, says Michael Blitz, an English professor at John Jay College who has co-authored a book called "Why Arnold Matters: The Rise of a Cultural Icon." In Sacramento, moving forward means making deals, not blowing up boxes. It means making compromises even if the final product ends up being something very Gray Davis: incremental.

So while the revolution waits, Schwarzenegger the governor remains overshadowed by Schwarzenegger the movie star--and that's all right too. Among other things, the action-oriented star still can play the outsider even though he's now very much inside. He can call Democrats "girlie men," hint that the Legislature should be part-time and mock legislators for "silly bills," including one regulating the height of motorcycle handlebars. "Is that what they spend their time on ... worrying about how high up a motorcycle handlebar is?" he asked in a radio interview.

He knew the answer. Two weeks earlier, he signed that bill into law. In fact, Schwarzenegger has signed 75% of the measures approved by the Legislature he ridicules. His veto rate nearly set a state record--but he still accepted the vast majority of their work.

"He lashes out at the system, even though it's the system that continues to build him," Blitz says. "He's quite brilliant at remaining outside. How does he continue to be the rebel when everything he has done has depended on mainstream elements of the culture--hero worship, the Republican Party? This is a guy who is a traditional politician."

In politics it's often not the things you know that kill you. It's what you don't know. As governor, there is no way for Schwarzenegger to keep track of it all. It's even tougher because the administration is divided into ideological camps. Some prominent Democrats are at the very top: EPA Secretary Terry Tamminen, advisor Bonnie Reiss and First Lady Maria Shriver. But the viscera of the administration are Republican. Veterans of Gov. Pete Wilson's administration are embedded throughout the bureaucracy, including several dozen on the governor's staff.

The dissonance has led to some blunders. Early on, fiscal conservatives in the administration decided it was a good idea to hasten the execution of cats and dogs at animal shelters to save cities and counties $14 million. And while they were at it, why not remove the requirement to check for microchips in animals and rescind a couple of cruelty laws?

Bad move, and perhaps his biggest public relations misstep. It drew a loud public outcry, but Schwarzenegger caught himself. He changed his mind, just as he did when he found out that cutting state money for people making $10 an hour caring for the disabled and infirm may actually hurt the disabled and infirm. The reversal on the pet issue was startling, and also refreshing. The governor showed that he was flexible. Former state Sen. Tom Hayden, who wrote the law protecting the animals, praised him for having the courage to change his mind.

He also gets credit for recognizing the difference between his old profession and the new one. "He's used to operating in a milieu where you say what you want and you get it," says state Sen. Sheila Kuehl (D-Santa Monica), a former child actor. "You're just in power. And the example that he has is being in charge. There's really nobody to gainsay him. There's no balance of powers in the [entertainment] industry."

There is in Sacramento. There also is a stasis to the place, an innate resistance to real change. Amid the cocktails with lobbyists and fundraisers at posh restaurants, the handshakes and committee meetings and realities of governing in the face of multibillion-dollar shortfalls, ambitions have a way of shrinking. "Fundamental change rarely happens among individuals, states or nations," says Jerry Brown, who governed California in the '70s. "Yes, he's going to do his best to change things. But of course, the state has" --he pauses to find the phrase--"its patterns."

So in the face of this reality, Schwarzenegger's ideas and promises are being downsized or deferred. Sometimes compromise seems to be not the means, but the end.

Plans to cap spending morphed into a squishier balanced budget amendment--the only measure that could muster enough votes to pass. Schwarzenegger originally had proposed a hard cap that would have set baseline spending at $72 billion, a level that would have required budget cuts of 16%. From that point forward, spending would have been fixed, except for adjustments for inflation and population growth. Instead, the governor wound up backing a balanced budget amendment that has no limit on spending as long as it is matched by what the state collects in revenue.

Schwarzenegger had tried a new, audacious approach to the $105-billion budget by seeking to bypass the Legislature. Long before serious negotiations opened, he quietly began to arrange side deals with some major interest groups that get billions in state money. He would forge an alliance with teachers, universities, mayors and county officials and deliver a budget on time with none of the usual rancor.

But Schwarzenegger's approach delayed a budget deal for weeks. Democrats in the Legislature balked, fearing they could lose control of the state's purse strings and give too much to cities and counties. Schwarzenegger tacked back and forth, embracing Assembly Democrats and then mayors and county supervisors. There were weeks of closed-door meetings to sort out the mess.

Jerry Brown's "patterns" were at work.

For all his language about delivering an on-time budget, Schwarzenegger needed one day more to reach a compromise than Davis did the year before. Though Schwarzenegger insists that the state now is living within its means, the methods used to complete the budget smack of the Davis years. Heavy borrowing. Accounting finesse. Onetime fixes.

Stephen Moore, president of the Washington, D.C.-based Club for Growth, an anti-tax group, and an outside advisor who reviewed the administration's early audit of state finances, described the budget as part "smoke and mirrors." Schwarzenegger met his promise not to raise taxes, after voters authorized up to $15 billion in borrowing--more than he needed. About $3 billion from the bond issue is still available for him to spend. But the state's debt is mounting. According to the independent legislative analyst's office, the amount of debt backed by the state general fund will rise from $33 billion in May to nearly $51 billion by next June--a 54% increase.

"We're not only spending more than we can afford, and borrowing a great deal more than we can afford, but we're also obligating ourselves to huge balloon payments a few years down the road," says state Sen. Tom McClintock (R-Thousand Oaks), who ran against Schwarzenegger in the recall and is considering a bid for lieutenant governor. "The fundamental financial problems of the state of California have not yet been addressed."

So maybe the budget revolution comes next year. Then again, Schwarzenegger's options remain mostly bad. He can break a campaign promise and raise taxes, cut spending so deeply that he shreds the social safety net--or both. Another round of heavy borrowing is unthinkable. Some in the administration are not ruling out a tax increase, while others hope a growing tax base will solve the problem. "We're betting on a strong economy," says Patricia Clarey, the governor's chief of staff.

Says Moore: "There's this one lingering problem that he's going to have to solve soon: What are we going to do with all this debt? It's enormous.... He's pushed a lot of these problems into fiscal [year] 2006. How is he going to deal with that issue? Because you can't keep pushing these projects into future years."

Schwarzenegger did make a start this year on his promise to "blow up the boxes" of government. He set up an enormous shadow government to conduct a sweeping review of the state's bureaucracy, calling it the California Performance Review. No fewer than 275 state workers, academics and outside consultants spent months in an office building near the Capitol shaping a plan that was supposed to streamline government. Their work was kept secret. Participants signed confidentiality agreements to safeguard the details. Former officials in both the Davis and Wilson administrations can't recall any other California governor requiring such agreements.

Despite the secrecy, special interests did get a peek inside. Microsoft, Hewlett-Packard and Electronic Data Systems Corp., among other companies, privately lobbied the review team. Environmental activists and public-interest groups complained that they were shut out. The review, they said, was not about making government more efficient but about accommodating powerful corporate interests. The final report had a pronounced pro-business tilt. One recommendation sought to save HMOs the expense of preparing for state audits. It was shaped with advice from healthcare executives and lobbyists.

It is not clear yet which parts of the report the governor will embrace. But even administration officials seemed disappointed with the results. One Schwarzenegger aide sniffed privately that it consisted of warmed-over ideas from past legislative battles. Independent state analysts said the projected $32 billion in savings from trimming the bureaucracy was overstated by two-thirds. So not only might many boxes remain unexploded, but Schwarzenegger may have lost an opportunity, because the state needs the money.

The first thing to remember about Schwarzenegger is that he never loses. Even when he loses he wins. A big part of his professional life has been about positioning himself to come out ahead--first in public perception, and second, if possible, in reality. That ability translated quite nicely to his new role. In January, after a judge said the governor had to pay back a $4.5-million campaign loan with his own money instead of raising funds from donors, Schwarzenegger declared it a "fantastic" decision, even though his lawyers had argued against it.

In April, Schwarzenegger returned from Israel and told a California Chamber of Commerce breakfast meeting that "we got five companies to go and form partnerships with California companies" and announced these deals had brought almost 1,000 jobs to the state. "So we were very, very successful with that," he declared about his overseas trip. Turns out that he was using an old political ploy--run to the front of the parade and declare yourself drum major. The companies later said Schwarzenegger had almost nothing to do with the deals. The plans had been in the works before he took office.

But even if Schwarzenegger can seem like just another politician some of the time, there's no denying that he has made the governorship fascinating much of the time. But not always. One day before the March 2 election, Schwarzenegger appeared in Los Angeles to promote propositions 57 and 58, his plans to balance the budget with $15 billion in bonds and enact a state spending cap. His destination was the Original Pantry Cafe, owned by his friend Richard Riordan, former L.A. mayor and now California secretary of education.

The governor shook his head: "I know who runs this place," he says, ribbing Riordan, who stands nearby with his wife, Nancy Daly Riordan. "He cannot run it. He barely can run his house. Nancy is running everything. But he runs very well our education... like a jewel. But the restaurant, I don't believe that."

He gives Burrell "YES on 57 and 58" bumper stickers to hand out to customers.

The governor says hello to a heavyset man sitting at the counter and asks what he is eating.

"Only egg whites, egg whites," the man replies, "for my cholesterol." Above the low neck of the man's T-shirt is a surgical scar, which Schwarzenegger notices. "I see. Are you staying away from carbs?" he asks.

Man: "Oh, yeah."

Governor: "Stay away from the potatoes too."

Man: "I stay away from [those] once in a while."

Governor: "Better to stay out of this restaurant."

Schwarzenegger reaches the table of two young women, Sarai Torres, 25, who promotes a nightclub called Seduction, and Sarah Willey, 27, a photography student. The women have moved to the same side of the table so they both can be in the TV shot.

"Do they have a beauty contest here? All these beautiful women," the governor says, shaking their hands.

The governor hands out bumper stickers, examines their meal and points to the women's toast: "You put a little too much butter on there." He then poses for pictures with the pair. A photographer says something about wide angle. "They don't need wide angle," Schwarzenegger says. "They are skinny."

The scene contrasts sharply with his work environment in Sacramento, where Schwarzenegger has suffused his office with unique energy. When he and his wife come in, aides rush, tension rises. The couple are unstoppable, spewing out ideas and moving on. They have brought an otherworldly quality to the cramped governor's office.

"Surreal," deputy chief of staff Cassandra Pye says about working for Schwarzenegger.

Just moving Schwarzenegger around takes far more people than with previous governors. In April, six police cars and three black SUVs shepherded Schwarzenegger 20 miles from the statehouse to an appearance at UC Davis to promote hydrogen-fuel vehicles. His communications director, a press aide, a speechwriter and personal assistant Clay Russell came along. Three Cabinet secretaries were there to greet him.

To prepare for the event, UC Davis assigned three staff people to set up the event for the better part of a week. The parking office was closed, temporarily displacing three staffers, so the building could be used for his arrival.

A week before, a seven-person advance team spent three hours at UC Davis, meeting with officials and touring campus sites. A deputy advance director made two follow-up trips there during the week. To build a stage, they enlisted a crew of 12. A dozen people brought out cars. GM and Ford sent corporate representatives to help set up. The fire department sent three people to inspect the fueling station, to which Schwarzenegger would drive a hydrogen vehicle. Davis police and campus security also were deployed the night before and during the appearance.

Schwarzenegger arrived on time for the 10:30 a.m. event.

It was over in 20 minutes.

Whenever Schwarzenegger is seen in public, it is like this. He has overturned the way people view the governor's office, both from inside his administration and out. One of his first acts as governor was to place a gold "ARNOLD SCHWARZENEGGER" over the marble "GOVERNOR" sign outside his Capitol office, like a star who insists on his name above the film title. Still, the change was helpful; hundreds of people line up every month to take pictures of themselves under the sign.

Schwarzenegger staff members, too, shake their heads in disbelief at the star-power world they have entered. Margita Thompson, his press secretary, has a story: She was raised in San Diego and Tijuana and worked for Larry King at CNN and in the West Wing of the Bush White House. But nothing she has ever done matches the day she rode in a camouflaged Blackhawk helicopter with the governor, staff and friends as they traveled from Israel to dine with the king of Jordan at his palace. She sent a BlackBerry message to her mother: "Mom, I'm on a helicopter on the way to have lunch with the king," traveling "where Jesus walked." Later, she flew on Schwarzenegger's private jet to Germany, ending the day celebrating with soldiers who had served in Iraq and Afghanistan.

Thompson says she told Schwarzenegger, "You've had an amazing life. He just said, 'I am very lucky.' "

After considering 1,270 pieces of legislation this year, Schwarzenegger offered the state some definition of his political philosophy: He is a traditional Republican when it comes to helping corporations and businesses, but has Democratic values on the environment, domestic partnership and gun control. There is very little surprising about any of it; Schwarzenegger seems a lot like most Californians. With a handful of exceptions--such as allowing free needles for drug abusers and granting food stamps to some convicted felons--his record looks not much different from Davis' and Wilson's.

Yet the governor is smart enough to have surrounded himself with enough powerful minds so that he could leave after three years, or seven, if elected to a full second term, with a record of great accomplishment. But so far, no. He came to Sacramento with enormous political capital, enough perhaps to transform California's dysfunctional tax system, not necessarily by raising taxes but by fixing the disparities. He could have thrown open the doors of government like he promised, pushing the Legislature to pass significant public records changes to peer inside the back rooms. He could have done something about the flood of special interest money by proposing stricter fund-raising rules. He could have started earlier on his sweeping plan to bring solar power to new homes, instead of introducing a measure in the final weeks of the Legislature and doing little while it sputtered and died. He could have stopped the ballot-box budgeting by refusing to put agreements on the ballot protecting local governments from being raided by the state.

Many of Schwarzenegger's detractors label him a failure because he has done little his first year. They will judge him a success only if he is truly revolutionary, as promised. One of the governor's biggest critics has been state Treasurer Phil Angelides, a Democrat who plans to run for governor in 2006--perhaps against Schwarzenegger. Angelides' political motives made him one of the first people in the Capitol willing to question Schwarzenegger when Democrats were running in fear. Now that Schwarzenegger has shown he is less willing to bring down the hammer, more and more Democrats and even a few Republicans have begun openly criticizing the governor.

"I don't think the influence of the special interests groups has changed at all" in the Capitol, says Assemblyman Keith Richman (R-Northridge.) "There is some change in the influence at the governor's level," he said, adding, "it's gone from public employee unions and trial attorneys to business special interest groups having more influence."

Richman said he was disappointed in the 2004-05 budget deal because it deferred decisions at the exact moment Schwarzenegger has the political capital to "make fundamental reforms that were necessary in the budget to bring it into balance. I think the governor in fact proposed many of those fundamental reforms."

Angelides calls it a "tragedy because the governor came in with an unusual popular mandate and he's had high popularity ratings, and the only reason to have political capital is to spend it down for the public good, and that's the one thing he hasn't done. He appears to want adulation more than he wants the long-term well-being of the state. What's the point of having popularity ratings of 75% if you're not spending them down to ask people to do tough things?"

California could wake up next year to a new Schwarzenegger. The Legislature should not be surprised if he introduces a massive reform package that includes sweeping changes to the political system, including open government and campaign finance rules. The public should not be surprised if he takes his hobbled California Performance Review and finds enough to radically shake up the bureaucracies and dramatically reduce the size of government. He could ask voters to put the drawing of legislative districts into the hands of an independent panel instead of partisan lawmakers.

There could be tax reform as well. Could Schwarzenegger tackle the most untouchable subject in California politics, Proposition 13? The uneven nature of the state's tax structure means some homeowners pay vastly different tax rates than their neighbors, while cities and counties complain about crumbling infrastructure and uneven financing from the state. Others wonder if commercial properties should be taxed at a higher rate. Tackling this mess would be difficult and politically risky.

Part of the problem in defining Schwarzenegger is that he operates on two contradictory levels--the revolutionary and the appeaser. He perpetually talks about ending partisan bickering, about being partners with his friends in the California Legislature. In another breath, he will lash out at lawmakers for not bending to his will. In his famous "girlie man" speech he said: "Their approval rating is in the 30s, my approval rating is in the 70s, because the people know why I am there. They are the obstructionists up there right now. They are stopping the budget. I am representing you, and people know they are representing special interests rather than the public interest."

This dual personality may appeal to California voters. The appeaser and compromiser shows the governor can get the job done and work with Democrats. He's bipartisan. Being a competent chief executive who doesn't blow up the system also eases fears that Schwarzenegger, who came to office with an absurdist Terminator personality and zero experience in government, is not going to turn into another unpredictable Jesse Ventura. The revolutionary appeals to voters who also see California government as inherently corrupt and ineffectual.

Schwarzenegger is still working it out. Paul Wachter, the governor's personal financial advisor and friend, acknowledges that Schwarzenegger is a brand undergoing a makeover: "And you have to separate out his brand prior to last year and now. We're all still learning what the new brand is and what to do with it and what not to do with it."

When it comes to politics, he is a work in progress. The Schwarzenegger website posted a poll recently: "In a hundred years, how do you think Arnold will be remembered? As an action star? As a bodybuilder? As a businessman? As a politician? As a hero?" The answers after 61,000 online votes were almost evenly divided among action star, bodybuilder and hero at about 31% each. Businessman received 2%.